Durbin Interchange Decision Unexpected, Appeal Uncertain

Whether or not the Federal Reserve can or will appeal last week’s decision overturning two-thirds of its debit interchange regulation hangs in the balance because of several unresolved questions.

U.S. District Court Judge Richard Leon's detailed and caustic decision included rejecting the cap on debit interchange for issuers of more than $10 billion in assets and the rule's payment network provision.

First, it’s unclear whether the Fed can appeal on its own or whether it has to have the approval of the Department of Justice to do so. Legal experts and lawyers point out that a number of independent federal agencies have independent litigation authority, but that authority usually does not cover any and every circumstance.

For instance, an agency like the Federal Reserve might have the authority to defend itself if sued at the district court level, but then still need the approval of the Department of Justice to appeal a loss there.

A spokesman for the Federal Reserve was uncertain about the Federal Reserve's level of independent litigation authority.

If the Federal Reserve has to win the approval of the Justice Department for an appeal, it’s also unclear whether that would happen or, if such approval is not needed, whether the agency would bring an appeal to such a toughly worded opinion.

CUNA and NAFCU are urging the Federal Reserve to bring the appeal.

“CUNA was extremely disappointed with the district court’s ruling last week regarding debit interchange,” said CUNA Associate General Counsel Mary Dunn.

“While it is inappropriate to lobby the Fed to encourage it to file an appeal, CUNA is working hard to reinforce its view that the Fed appeal, including ensuring any senior Fed staff are aware of credit unions’ concerns,” Dunn said.

NAFCU General Counsel Carrie Hunt said that trade group also has been working to make sure the Federal Reserve understood credit union interest in the case, particularly the payment network provisions that she said represent credit union's biggest compliance headache from the rule.

Meanwhile many acknowledge that they had not expected the decision to have been a loss for the Federal Reserve or, if a loss, such an emphatic reversal.

“I don't think anyone in the courtroom in October could have heard the questions from the bench and forecast this decision,” remarked CUNA General Counsel Eric Richard, who had been in the courtroom for those oral presentations and questions.

Richard described Leon's questions from the bench as much more undecided than his eventual decision, which the judge handed down months later than when he had said he expected to complete it.

“I believe in the courtroom he said he looked for a decision before the end of the year (2012) and of course the decision came much later,” Richard recalled

CUNA and NAFCU joined other debit issuers in filing an amicus brief on the case at that time.

Other legal sources also said the final decision bore little resemblance to anything they had heard in arguments before Leon, with one source observing that some of the questions which appeared to preoccupy Leon in October were on topics he did not wind up including in the final opinion.

“This decision just illustrated that one never can really know,” when it comes to court decisions, observed Sam Febens, spokesman for the Electronic Payments Coalition, the group of issuers, networks and card brands which banded together to defend card interchange.

Mallory Duncan, general counsel for the National Retail Federation, said his organization had been “guardedly optimistic” about the decision since the oral arguments, contending that while Leon's questions had been fair and probing they had also appeared to have been leaning in the retailers' direction.

“There was a slight sense that he got it,” Duncan said. “That he understood how the system worked.”

Duncan called the decision “fair” and “good” and said his organization “hoped the Federal Reserve and Justice Department will do the right thing” and let it stand.